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The Never-Ending Sales Season

Since the beginning of the year, retailers have offered generous promotions to attract more customers after a holiday retail season that underwhelmed Wall Street. The never-ending retail beat of sales and promotions has retailers and analysts asking if paying full price for clothing is a thing of the past.

“It has done a disservice,” said Liz Pierce, a senior vice president and senior research analyst at Brean Capital LLC, a financial services firm headquartered in New York. “What is the real price of an item? What is the fair price? It is a concern industrywide.”

The incessant pace of promotions for the past couple of years has been blamed for cutting into vital margins for businesses. It has contributed to declines in sales and the shuttering of once-strong teen retailers such as Dots and Delia’s and has forced some retailers, such as The Wet Seal Inc., to reorganize and change their business strategies.

The call of the sale is well represented across the board in the retail market. Major retailers such as Macy’s Inc. offer frequent promotions. A recent Macy’s Super Saturday sale, announced on May 29, found Macy’s Men store offering 25 percent to 65 percent off full price.

During a Memorial Day weekend trip to Northridge Fashion Center, more than 27 miles northwest of downtown Los Angeles, nearly every specialty retailer seemed to be offering variations of BOGO deals (“buy one, get one free”). A typical promotion for many specialty retailers was “buy one, get 50 percent off of another one.”

“When you get to end of season, in some cases, especially when the company is struggling, BOGO half-off has become BOGO free,” Pierce said.

Pierce noted that many retailers plan for the BOGO sales and manage to make their margins. Yet when generous BOGO deals are a frequent part of the retail landscape, she said, it makes consumers blasé about any promotion retailers offer. “What do you have to pull out of a hat to get them interested if you BOGO 50 percent off every day? What are you going to do to excite them during key times?” she said.

Pierce traced the current promotional climate as rooted in The Great Recession. But a state of frequent and seemingly permanent promotions started in earnest in 2013. She contends that the lure of technology, especially smartphones and their corresponding data plans, is competing for dollars that in the past were probably spent on apparel. Without any key trends and must-have items, she said, it has been difficult to compete.

Excess inventory

The state of heavy promotions has taken place during especially challenging times for fashion retailers in 2015, said Jeff Van Sinderen, a senior analyst with B. Riley & Co. LLC in Los Angeles. Labor disputes in West Coast ports resulted in a lot of merchandise being delivered a week or two late to retailers. Retailers with already heavy inventory are forced to put these late items on sale to make room for Pre-Fall and Back-to-School deliveries.

“You have a lot of merchandise, and it has to go somewhere. The retailers don’t have much choice but to aggressively mark it down and promote it,” he said.

Van Sinderen contended that the 2015 promotions are about even with the previous year, the process just looks frenzied because there is a lot of inventory, and cold weather in the first half of the year across the United States is blamed for keeping people away from shopping districts. He suggested that distortions from macro-factors such as weather and port delays have the potential to ease in the second half of 2015, alleviating pressures on retailers to promote as aggressively.

Kitson, an independent multi-brand retailer headquartered in Los Angeles, produced a Memorial Day sale that featured discounts such as 25 percent off of the high-end men’s Mason’s brand and an additional 25 percent off of other sale merchandise. Kitson founder Fraser Ross said another reason for the state of constant sales is a way to compete with the lure of fast fashion, which built a business on selling clothes at low prices.

His reaction to unceasing sales has been to further diversify his business. Over the past few years, Kitson has increased its business in categories that are not as affected by markdowns, such as apothecary and novelties. “You got to merchandise where markdowns are not so rampant. You only got six weeks before something goes on promotion,” he said.